Combination of Life and LTC Policies Have Come of Age

You’re in the prime of your life, healthy, active, and looking forward to enjoying all that life has in store. But amidst all that anticipation, a little voice inside your head keeps saying you won’t always be the way you are now. Since it is doubtful you have the power to see into the future; you have no idea if you will be a victim of declining health as you age. The best thing to do is to hedge your bets with coverage that offers both life and long-term care insurance wrapped into one policy.

This hybrid coverage takes the guessing game out of whether or not you should invest in a long-term care policy, knowing there is the possibility you may never need it. With this combination, the underlying approach is the life insurance, and the long-term care provision is added as a rider. When long-term care benefits are needed, the insurance company pays a fixed percentage of the policy’s monthly death benefit as an accelerated death benefit. Generally, long-term care benefits are around 2 percent of the policy’s death benefit but could be as high as 5 percent, depending on the policy. Benefits paid for long-term care are subtracted from your original death benefit. Your life insurance benefit remains intact if you never need long-term care benefits.

If you have a significant amount of cash value in a current life insurance policy, you may be able to purchase a combination policy through a 1035 exchange. The 1035 exchange allows for the direct transfer of accumulated cash value in one life insurance policy to another without creating a taxable event.

There are some drawbacks to combining life insurance and long-term care coverage. Many policies cap the amount allocated for long-term care benefits at 50 percent of the policy’s death benefit. A combination policy could leave you short of funds if you are confined to a care facility for an extended period.

Inflation is another factor you need to consider. Standalone long-term care policies usually offer inflation protection to adequately cover the rising costs of long-term care, and a combination policy may not provide the same inflation protection.

If you are considering purchasing a combination policy, there are a few guidelines to keep in mind:

·    Purchase your policy from an insurance company with a solid financial outlook.

·    If you plan to exchange your current life insurance policy, ensure the new one provides better coverage than your original one.

·    Carefully compare traditional long-term care insurance with a combination policy to be sure the combination policy is suitable for your individual needs.

·    Talk to an experienced insurance agent, Brian Gruss, about the options to ensure your long-term care needs.